AUDITORS’ REPORT

The Members of DLF Power Limited

1.We
have audited the attached Balance Sheet of DLF
Power Limited, as at 31st March 2004, the Profit & Loss
account and also the Cash Flow Statement for the year ended on that date,
annexed thereto. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We
conducted our audit in accordance with the auditing standards generally
accepted in India. Those Standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

2As the company is
governed by the Electricity (Supply) Act, 1948, the provisions of the said Act
have prevailed wherever the are inconsistent with the provisions of the
Companies Act, 1956.

3.As
required by the Companies (Auditor's Report) Order, 2003 issued by the Central
Government of India in terms of sub-section (4A) of section 227 of the
Companies Act, 1956, we enclose in the Annexure a statement on the matters
specified in paragraphs 4 and 5 of the said Order.

4.Further
to our comments in the Annexure referred to above, we report that:

(i)We
have obtained all the information and explanations, which to the best of our
knowledge and belief, were necessary for the purposes of our audit;

(ii)In
our opinion, proper books of account, as required by law, have been kept by the
company so far as it appears from our examination of the books;

(iii)The
Balance Sheet, Profit & Loss account and Cash Flow Statement dealt with by
this report are in agreement with the books of account;

(iv)In
our opinion, the Balance Sheet, Profit & Loss account and Cash Flow
Statement dealt with by this report comply with the accounting standards
referred to in sub-section (3C) of section 211 of the Companies Act, 1956;

(v)On
the basis of written representations received from the directors, as on 31st
March 2004, and taken on record by the Board of Directors, we report that none
of the directors is disqualified as on 31st March 2004 from being
appointed as a director in terms of clause (g) of sub-section (1) of section
274 of the Companies Act, 1956;

(vi)(a)As
stated in note 4 of schedule 11, revenue frompower supply is on the basis of Company’s Invoices /claims raised in
terms of Power Purchase Agreements.In
respect of Invoices / claims aggregating Rs. 12067.76 lacs (previous year Rs.
13529.47 lacs) outstanding as at the year end and included under sundry debtors
in Schedule –5, we are unable to comment on the adjustments, if any, required,
pending final acceptance thereof by the customers, as these cannot be
determined at this stage.

(b)Sundry
Debtors includes Rs.1039.80 lacs (previous year Rs. 1287.90 lacs) pertaining to
Energy Systems Division in respect of which we are unable to comment on the
recoverabilityor otherwise thereof due
to non receipt of outstandings from clients.

(vii)Subject to our comment in clause (vi)
above, in our opinion and to the best of our information and according to
the explanations given to us, the said accounts give the information required
by the Companies Act, 1956, in the manner so required and give a true and fair
view in conformity with the accounting principles generally accepted in India:

(a)In
the case ofBalance Sheet, of the state
of affairs of the company as at 31st March 2004;

(b)In
the case ofProfit and Loss account, of
the profit for the year ended on that date; and

(c)In
the case of Cash Flow Statement, of the cash flows for the year ended on that
date.

For S.S.
KOTHARI MEHTA & CO.

Chartered Accountants

(ARUN K.TULSIAN)

Partner

Membership No. : 89907

Place : New Delhi

Date:

ANNEXURE
TO THE AUDITORS’ REPORT

Referred to in paragraph 2 of our report of even
date to the members of DLF POWER LIMITED
for the year ended 31st March, 2004.

1. (a)The
company has maintained proper records in respect of its Fixed Assets showing
full particulars including quantitative details and situation of fixed assets.

(b)We have been informed that major fixed
assets of the company have been physically verified by the management according
to a phased programme of periodic verification which, in our opinion, is
reasonable having regard to the size of the company and nature of its
business.As informed, no material
discrepancies between the book records and the physical inventory have been
noticed in respect of the assets physically verified.

(c)Substantial part of fixed assets has not
been disposed off during the year and, therefore, does not affect the going
concern assumption.

2. (a)As
informed, the inventory of the Company at all its locations, except stocks
lying with third parties and in transit,have been physically verified by the management either at the end of the
year or after the year end. In our opinion, the frequency of verification is
reasonable.

(b)According
to the information and explanations given to us, the procedures of physical
verification of inventory followed by the management are reasonable and
adequate in relation to the size of the company and the nature of its business.

(c)In our opinion and according to the
information and explanations given to us, the Company is maintaining proper
records of inventory. The discrepancies noticed on physical verification of
inventory compared to book records were not material and have been duly taken
care of in the financial books.

3. (a)The
company has taken loan from its holding company DLF Universal Limited covered
in the register maintained under section 301 of the Companies Act, 1956. The
maximum amount involved during the year in respect of such company and the year
end balance of such loan is Rs. 22667.35 lacs and Rs. 22667.35 lacs
respectively. The company has not given loan to any company, firm or other
party covered in the register maintained under section 301 of the Companies
Act, 1956.

(b)In our opinion and according to information
and explanations given to us, the rate ofinterest and other terms and conditions on which loan has been taken are
not, prima facie, prejudicial to the interest of the company.

(c)In respect of the
aforesaid loan, the amount of principal and interest have been paid as per
mutual understanding between the company and the holding company.

(d)Based on our comments
in clause c) above,there are no
overdue amounts exceeding rupees one lac at the year end.

4.In
our opinion and according to the information and explanations given to us, and
having regard to the explanations that certain items purchased / sold are of
special nature for which suitable alternative sources do not exists for
obtaining comparative quotations, there are adequate internal procedures
commensurate with the size of the company and the nature of its business with
regard to purchases of inventory, fixed assets and for the sale of goods.
Further, on the basis of our examination of the books & records of the
company, carried out in accordance with the generally accepted auditing
practices in India, we have neither come across nor have we been informed of
any instances of major weaknesses in the aforesaid internal control procedures.

5.(a)To the best of our knowledge and belief and
according to the information and explanations given to us, we are of the
opinion that the transactions that need to be entered into the register
maintained under section 301of the Companies Act, 1956 have been so entered.

(b)In our opinion and having regard to our
comments in paragraph (4) above, and according to the information and
explanations given to us, the transactions made in pursuance of contracts or
arrangements entered in the register maintained under section 301 of the
Companies Act, 1956 and exceeding the value of rupees five lakhs in respect of
any party during the year have been made at prices which are reasonable having
regard to prevailing market prices at the relevant time.

6.The
company has not accepted any deposit from the public within the meaning of
provisions ofsection 58A and 58AA of
the Companies Act, 1956.

7.In
our opinion, the Company has an internal audit system commensurate with the
size of the Company and nature of its business.

8.We
have broadly reviewed the books of account maintained by the Company pursuant
to the Rules made by the Central Government for the maintenance of cost records
under section 209 (1) (d) of the Companies Act, 1956 in respect of the
Company’s power generating activityto
which the said rules are made applicable and are of the opinion that, prime
facie, the prescribed records have been made and maintained. We are, however,
not required to make a detailed examination of such books and recrods.

9.(a)In our opinion and according to theinformation and explanations given to us,
undisputed statutory dues including Provident Fund, Investor Education and
Protection Fund, Employees' State Insurance, Income Tax, Sales Tax, Wealth Tax,
Custom Duty, Excise Duty, Cess and other material statutory dues have been
generally regularly deposited during the year with the appropriate authorities
and there are no undisputed statutory dues payable for a period of more than
six monthsfrom thedate they became payable as at 31st
March, 2004.

(b)(i)In our opinion and according to the
information and explanations given to us, there are no dues in respect of
excise duty, income tax,wealth tax,
customs duty, excise duty and cess that have not beendeposited on account of any dispute.

(ii)In our opinion and
according to the information and explanations given to us, the dues in respect
of sales tax that have not been deposited with the appropriate authorities on
account ofdispute and the forum where
the dispute is pending are given below:-

Name of the
Statute

Nature of
the Dues

Amount
(Rs.in lacs)

Forum where
dispute is pending

Sales Tax Act

Sales Tax

31.09

Sales Tax Tribunal Cuttack, Orissa,

10.The
Company does not have accumulated losses as at the end of the financial year
and has not incurred cash losses in the current financial year and in the
immediately preceding financial year.

11.In
our opinion, on the basis of books and records examined by us andaccording to the information and
explanations given to us, the company has not defaulted in repayment of dues to
any financial institution, bank or debenture holders.

12.Based
on our examinations of the records and explanations given to us, the company
has not granted any loans & advances on the basis of security by way of
pledge of shares, debentures and other securities.

13.The
Company is not a chit fund or a nidhi / mutual benefit fund / society.
Therefore, the provisions of clause 4(xiii) of the Order are not applicable to
the company.

14.In
our opinion, the Company is not dealing or trading in shares, securities,
debentures and other investments. Therefore, the provisions of clause 4(xiv) of
the Order are not applicable to the company.

15.According
to information and explanations given to us, the company has not given any
guarantee for loans taken by others from banks or financial institutions.

16.In
our opinion and on the basis of information and explanations given to us, the
term loans raised during the year by the company were applied for the purpose
for which the loans were obtained where such end use has been stipulated by the
lender.

17.On
the basis of information and explanations given to us, and on the basis of an
overall examination of the balance sheet of the Company, no funds raised on
short-termbasis have been used for
long-term investment and vice-versa.

18.The
company has not made any preferential allotment of shares during the year.

19.There are no secured
debentures outstanding as at the year end.

20.The Company has not
raised any money through public issues during the year.

21.During the course of
our examination of the books & records of the company carried out in
accordance with the generally accepted auditing practices in India, we have
neither come across any instance of fraud on or by the company, noticed and
reported during the year, nor have we been informed of such case by the
management.